The Motor City Needs a New Nickname

Detroit has been called the Motor City for almost a century, but that nickname no longer applies. In 1973 the Big Three automakers had a market share of over 80%, and more than one out of every four workers in the motor vehicle (and parts) manufacturing industry was employed in the Detroit metro area. Today, fewer than one in nine autoworkers are employed in Detroit, even after Federal assistance was provided to two domestic automakers.

The Obama Administration is proposing policies to help “insource” manufacturing jobs back to the US. The case of Detroit tells us that both new and existing manufacturing jobs are likely to re-locate in states with lower taxes and right-to-work laws.

The past 38 years has seen many changes in the auto industry, but the most striking change may be where vehicles are produced in the US. Auto industry employment declined by 70% since 1973 in Detroit, but increased in states outside of Michigan and Ohio.

Forty years ago economists might have argued that Michigan and Ohio had a comparative advantage in motor vehicle production. Factories in the upper Midwest were located close to suppliers of parts and raw materials and had access to the infrastructure that facilitates vehicle shipments. As the fortunes of the Big Three waned, foreign-owned firms had access to a pool of laid off workers with valuable skills and experience.

Nonetheless, in the past three decades new motor vehicle production facilities were built in cities and states that had none of the incumbent advantages of Detroit and Michigan. Foreign-owned firms were instead attracted by the lower taxes and more favorable labor laws in Southern states. I suspect that if manufacturing jobs are “insourced” back to the US in this economic recovery, Southern states will again be the beneficiaries.